Headlines today that claim the scope of the carbon tax will be reduced are very misleading. The (proposed) carbon tax remains intact. Ottawa has announced that it will increase output subsidies to some sectors.
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The policy was always intended to be a two-part policy: (1)charge emitters for carbon emissions;(2)provide subsidies to some sectors to promote competitiveness. The idea is to penalize carbon emissions without affecting competitiveness. Today, change to 2 was announced, not to 1
After today's announcement, the cost for an emitter to release a tonne of CO2 remains exactly the same; the incentive for an emitter to cut back on CO2 emissions therefore remains intact. There is no change to the scope, stringency, or comprehensiveness of the policy.
There is a change to the subsidies to output, intended to mitigate any potential impacts on competitiveness/leakage. These output subsidies are not tied to carbon emissions so they shouldn't affect carbon emissions directly.
What this does mean is that there is less revenue available for other purposes (e.g., returning to households). But again, it doesn't have big implications for incentives to cut emissions.
I seem to be a bit late to this issue, and for more, you should check out @jenwinter_YYC , @bcshaffer , and @trevortombe , who all have basically the same conclusions, as far as I can tell.
